For example, in October last year, EPF chief strategy officer, Nurhisham Hussein, said that only 3% of EPF contributors can afford to retire.

The various Covid-related withdrawals have also caused 6.1 million EPF members to have less than RM10,000 in their accounts. Out of this, 3.6 million have less than RM1,000.

With inflation being another area of concern, would people want to spend more of their golden years in the workforce? More critically, would it become a necessity instead of an option?

How then can one have sufficient funds for retirement? Apart from EPF, are there alternative investment options that one can consider? FMT spoke to an expert for his views.

“EPF provided an average return of 5 to 6% over the past decade. Although it’s a good investment tool for retirement, it’s not enough,” said Lim Ming Liang, a Capital Markets Services Representative’s License holder.

Lim said he believed that while it was good to have EPF contributions as part of one’s retirement portfolio, it was also advisable to have alternative investment options in addition to these contributions.

Choosing a suitable investment

When it comes to choosing a suitable option, Lim shared that there are several criteria to take note of, particularly the risk profile of the investor.

“It’s important to know the risk profile as it can help investors know how much risk or losses they can take,” he explained. According to Lim, there are three types of risk profiles: low, mid, and high risk.

Lim also shared that a person’s risk profile can be influenced by several factors such as age and level of investment knowledge.

“Generally, younger people tend to have a higher risk appetite than older ones. Therefore, they are encouraged to have a higher risk portfolio as this can generally bring them higher returns and this can help them to accumulate more funds for retirement,” he explained.

However, at the same time, he also advised not to put one’s entire capital on the line. “If you have RM100,000 to be invested, it is not prudent to put all of it into a high-risk investment.

Likewise, a person’s investment knowledge also has an impact on the risk profile. He said someone with a higher level of knowledge will be able to understand the risks associated with an investment better.

“For example, beginners may have the impression that a certain investment will definitely make a profit. When something adverse happens, they may panic. In comparison, an experienced investor may be able to handle these types of situations more calmly because they are already aware of the risks.”

Therefore, having a thorough understanding of what you’re investing in is important.

He said that even if you did not have in-depth knowledge, it was vital to at least understand the basics, such as the meaning of “investment horizon” as well as the “risks and rewards” associated with the investment of your choice.

What are the alternative options?

When asked about the types of alternative investments available in the market, Lim listed bonds, blue-chip stocks, private retirement schemes, unit trusts, and even property.

“Personally, I would recommend unit trust as a tool to accumulate funds for retirement because investors have the flexibility to choose funds that match their risk profile.”

Lim added that an attractive factor for unit trusts was its liquidity, as it can be easy to cash out the funds in the case of an emergency.

Although a flexible investment tool was preferred when it came to alternative investments for retirement, he stressed the need to exercise discipline, and refrain from using the funds unless it was for a genuine emergency.

Importance of retirement planning

“Ultimately, retirement planning is important to ensure that we don’t have to burden our children in our golden years. It’s good if we can take care of ourselves,” he said.

“And it’s always better to start early rather than later so we have the benefit of time on our side. After all, once we’ve ‘lost’ time, we won’t be able to get it back,” he said.

Lim also had this to say about the Covid-related EPF withdrawals: “For those in their 30s and 40s, the impact can be seen ten or twenty years down the road as they will lose the benefits of compounding interest on their funds.”